PUBLIC DEBT AND DEFICITS IN DENMARK - IS FISCAL-POLICY SUSTAINABLE

This article reviews the recent behaviour of public finances in Denmark, defines the concept of fiscal sustainability, suggests a stock-flow consistent accounting framework for public debt and deficits, and, finally, discusses the sustainability of fiscal policy, in a medium term perspective (1994-98). Provided that the gradual contraction of fiscal policy, as contained in the tax reform of 1993, is actually implemented, we find that current fiscal policy in Denmark is sustainable in the medium term. However, this result may be seriously undermined if the economy is disturbed by a weaker growth performance and higher real interest rates.